When a drink isn't a beverage: the VAT case that turned on one word

Can something be a drink for VAT purposes without being a beverage? It sounds like a question for a pub quiz, not a tribunal. But that distinction sits at the heart of a VAT dispute worth more than a million pounds, and the answer tells you something that applies to almost every business, not just this one.

The business is Bottled Science, which makes Skinade, a collagen drink. It argued that its product should be zero-rated as food, which would mean no VAT. HMRC said it was standard-rated, at 20%. The gap between those two positions, over the years in question, runs to more than £1 million.

Sometimes it's the smallest words in tax legislation that create the biggest disputes.

Where one word does the work

The UK's VAT rules zero-rate most food, and they go out of their way to say that food "includes drink". So far, so helpful for a drink.

The catch is that the same rules then carve "beverages" back out and standard-rate them. So a liquid can be zero-rated food if it counts as a "drink", or standard-rated if it counts as a "beverage". In everyday language those two words are interchangeable. In the legislation they are not, and which one applies decides whether you charge your customers 20% VAT or nothing.

What happened

The First-tier Tribunal originally sided with HMRC. It found that Skinade was not zero-rated food, with the way the product was marketed, as a beauty and wellness product rather than something you consume for nourishment, weighing heavily in the decision.

On 4 November 2026 the Upper Tribunal allowed Bottled Science's appeal (Bottled Science Ltd v HMRC [2026] UKUT 00429 (TCC)). Its central point was one of statutory interpretation: the First-tier Tribunal had given too little weight to that short note that "food includes drink", treating inclusive wording as if it were not conclusive. The Upper Tribunal has sent the case back to a differently constituted First-tier Tribunal to decide whether Skinade is in fact a "drink", and therefore food.

So Skinade has won this round. But note what has and hasn't been settled. The appeal succeeded on the interpretation point. Whether the product ultimately qualifies for zero-rating is still undecided, and now goes back for another hearing.

Why this matters well beyond collagen

It is tempting to file this under curiosities. It isn't one. It is a clean example of something we see throughout the tax system: ordinary words carry narrow, specific, and sometimes surprising meanings once they are inside tax legislation.

"Drink" and "beverage" here. "Confectionery" in the case that asked whether giant marshmallows were sweets. And it runs right through the international work we do most. In the Statutory Residence Test, which decides whether you count as UK resident, "home" and "accommodation" are not the same thing, and each has its own test. Tax treaties can turn on where your "permanent home" is. "Dwelling" means something specific again for stamp duty and capital gains. Seemingly similar words carry quite different meanings, and which one applies can make a real difference to the tax outcome.

That is the real lesson for a business owner. If you make or sell something whose VAT treatment is not obvious, a food or drink product, a supplement, a wellness item, anything that sits near a borderline, the classification is not a detail to settle later. It decides whether you are competitive on price, whether your margins are what you think they are, and whether you are building up a liability that surfaces when HMRC comes to look.

What we'd do

Cases like this are a useful prompt to ask a question of your own business: have you actually had the VAT treatment of your products reviewed, and could you show your working if HMRC asked? Classification is rarely obvious, and as Skinade shows, it can be argued both ways and tested years later. You will not always avoid a dispute, but you are in a far stronger position if you have taken a considered view early, documented the reasoning while the evidence is fresh (including how you market the product), and you understand your exposure rather than discovering it in an assessment.

If you have a product whose VAT position you have never had properly checked, or you are about to bring one to market, that is exactly the kind of question worth getting right early. If that's you, book a call and we'll talk it through.

This article is general commentary on a decided appeal, not advice, and the Skinade case itself is not finally resolved. The VAT treatment of any particular product turns on its own facts, so check your own position before relying on any of this.